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The planned recapitalization of directory publisher Yellow Media Inc. — a company not operating under CCAA and which recently reported $67.7-million in quarterly net earnings — becomes more controversial by the day.

The recapitalization (under which all investors get a haircut and the debtholders end up owning 82.5% of the “new” Yellow Media) is opposed by the company’s senior lenders, the holders of its convertible debentures and a good chunk of its preferred shareholders. Two of those groups have filed motions with the courts.

Prior to announcing the plan on July 23, Yellow Media lined up the support of holders owning 30% of its medium-term debt who are viewed as the major beneficiaries of the recap plan.

“The company is solvent. The company can meet its debt obligations without defaulting, without question, up till April 2014,” said Glen Bradford, a U.S.-based investor who represents 1.9 million preferred shares and who personally owns more than 250,000.

“A recapitalization plan should only be implemented to avoid an imminent default. There is no imminent default. Thus, there is no imminent requirement to have one,” added Bradford, who argues an extension of term for the senior debt held by the banks plus a buy-back of medium-term debt would lead to a dramatic improvement in the company’s financial outlook.

Bradford argues the recapitalization plan is unnecessary because “in two years time, the company can re-do this process” and equity holders will get more by voting no. So why the rush? “It’s irresponsible and silly,” he claims and asks: Why force a recapitalization assuming high rates of revenue and EBITDA decline provided by analysts when the company just beat analyst estimates by more than 50%?

Yellow Media proposed the recapitalization initiative “to align its capital structure with its operating strategy.”

Overall Bradford regards the recapitalization as a “default on the company’s equity obligations and represents a breach of fiduciary responsibility.” Accordingly he doesn’t see “the need to recapitalize.” As well, he expects dividend payments, including arrears, on the Class C and D preferreds by year-end because of a “mechanism” that kicks in once the Class A preferred shares are converted to common shares. In all, five classes of preferred shares are affected by the recapitalization. Dividends on the preferreds have not been paid since July 2011.

Late Tuesday, the syndicate of lenders to Yellow Media issued a statement saying it “would be best for the company to withdraw its proposed Canada Business Corporations Act plan of arrangement and to enter into further negotiations with its stakeholders. The syndicate is of the view that certain aspects of the proposed plan can be improved upon for stakeholders.”

Earlier this month, the syndicate filed a motion in the Quebec Superior Court asking the interim order granted to Yellow Media be revoked. That motion, together with a similar motion filed by the convertible debentureholders, was essentially held over until after the Sept. 6 vote of security holders.

In Tuesday’s statement , McMillan LLP, counsel for the lenders, noted Yellow Media’s Q2 results showed “the company continues to generate significant cash flows,” adding Yellow Media did not include cash flow forecasts as part of the information circular filed with the court on Aug. 3. Accordingly, “the company’s future cash flow forecasts should be disclosed to affected stakeholders so that they can better assess the merits of the company’s proposed plan.”

Indeed, McMillan argued implementation of the company’s current plan “is not urgent.”